Chapter 13-17
According the 2001 CSO mortality table, the yearly probability of dying for a 40 year-old man is .00165. The present value of $1 one year from today, assuming a 5.5 percent interest rate, is .9479. What is the net single premium per $1,000 for a one-year term insurance policy sold to a man at age 40 assuming a 5.5 percent interest rate? Assume the premium is paid at the start of the year and the death benefit is paid at the end of the year. $7.18 $2.45 $1.56 $952.81
$1.56
Beta Corporation has 1,000 employees eligible to participate in the firm's pension plan, and 100 of these employees are considered highly compensated. All of the highly compensated employees are covered by the plan. What is the minimum number of the 900 non-highly compensated employees who must be covered by the plan in order for the plan to satisfy the ratio percentage test? 900 630 500 667
630
Which of the following statements about the continuation of group health insurance under the COBRA law is true? The length of the continuation of coverage is 90 days. A continuation of coverage must be made available even if an employee voluntarily terminates employment. The employer must pay the entire cost of coverage during the continuation period. The option to continue coverage applies to minor children only, not to adults.
A continuation of coverage must be made available even if an employee voluntarily terminates employment.
Which of the following statements about the tax implications of qualified pension plans is true? Investment income on plan assets is taxable in the year the investment income is earned. Distributions from qualified pension plans are received tax-free by the retiree. Employer contributions are deductible up to certain limits as an ordinary business expense. Employer contributions are considered taxable income to employees but are taxed at capital gains rates.
Employer contributions are deductible up to certain limits as an ordinary business expense.
Which of the following statements about high deductible health insurance plans is (are) true?I.Coverage under a high deductible health plan is necessary to establish a qualified health savings account (HSA).II.High deductible health plans provide a maximum limit on annual out-of-pocket expenses. I only II only both I and II neither I nor II
I and II
Which of the following statements about tax-deferred retirement plans in the U.S. is true?I.Women, on average, receive lower employment-based retirement income than men.II.One way to hedge against inflation is to invest lump-sum pension distributions in fixed-income investments. I only II only both I and II neither I nor II
I only
Which of the following statements is (are) true regarding taxation of life insurance?I.Life insurance proceeds paid in a lump-sum to a designated beneficiary are received free of federal income taxes.II.The policyowner must pay taxes annually on the amount by which the cash value of his or her life insurance policy has increased. I only II only both I and II neither I nor II
I only
Which of the following statements is (are) true with respect to a joint-and-survivor annuity?I.Some joint-and-survivor annuities reduce the income payment after the first annuitant dies.II.No payments are made after the first annuitant dies. I only II only both I and II neither I nor II
I only
Which of the following statements is (are) true with respect to annuities?I.Annuities are the opposite of life insurance.II.The fundamental purpose of annuities is to replace lost income in case of premature death. I only II only both I and II neither I nor II
I only
Which of the following statements regarding health care expenditures in the United States is (are) true?I.As a nation, the U.S. spends significantly more on health care than most other industrialized nations.II.Health care expenditures in the U.S. are high because everyone is covered by a health insurance plan. I only II only both I and II neither I nor II
I only
Which of the following statements regarding recent developments in employer-sponsored health plans is (are) true?I.Preferred provider organizations (PPOs) continue to dominate group health insurance markets.II.The number of employers offering medical benefits to workers who retire early has increased. I only II only both I and II neither I nor II
I only
Which of the following statements concerning defined benefit and defined contribution pension plans is (are) true?I.The employer bears the investment risk with a defined contribution plan.II.Defined benefit plans favor workers who enter the plan at older ages. I only II only both I and II neither I nor II
II only
Which of the following statements concerning vesting under qualified retirement plans is (are) true?I. The same vesting rules apply to defined benefit plans and defined contribution plans.II. Employer contributions to a defined contribution plan must vest faster than employer contributions to a defined benefit plan. I only II only both I and II neither I nor II
II only
Which of the following statements is (are) true regarding provisions of the Affordable Care Act (ACA)?I.Provisions of the ACA apply to disability income insurance and long-term care insurance.II.The ACA requires medical expense insurance policies to provide a comprehensive package of essential health benefits. I only II only both I and II neither I nor II
II only
Which of the following statements is (are) true regarding the taxation of distributions from individual annuities?I.Individual annuity distributions are never taxable.II.Once the annuitant has recovered the premiums he or she paid for the annuity, the entire annuity distribution is taxable. I only II only both I and II neither I nor II
II only
Which of the following statements is (are) true with regard to Roth IRAs?I.The portion of a Roth IRA distribution that is attributable to investment income is taxable.II.There is a maximum income level above which Roth IRA contributions are not allowed. I only II only both I and II neither I nor II
II only
Which of the following statements is (are) true with regard to group life insurance?I.Most group life insurance is whole life coverage.II.Most group life insurance plans allow a modest amount of life insurance on the employee's spouse and dependent children. I only II only both I and II neither I nor II
II only
Which of the following statements is (are) true with respect to SIMPLE retirement plans?I.Only large employers can start a SIMPLE plan, provided the employer does not maintain another qualified plan.II.SIMPLE plans are exempt from most nondiscrimination and administrative rules that apply to qualified plans. I only II only both I and II neither I nor II
II only
Which of the following statements regarding the taxation of individual annuities is (are) true?I.The exclusion ratio is the percentage of the annuity income that is taxable.II.After the net cost of the annuity has been paid to the annuitant, the total annuity payment is taxable. I only II only both I and II neither I nor II
II only
Which of the following statements about individual disability income policies is true? Benefits paid for partial disabilities are usually greater than benefits paid by the same policy for total disabilities. Benefits are typically paid only for disabilities resulting from sickness. Most policies pay a benefit equal to 100 percent of the disabled person's lost income. Many policies provide or make available a residual disability benefit for persons who are able to work but at a reduced income
Many policies provide or make available a residual disability benefit for persons who are able to work but at a reduced income
Insurers offering variable annuities charge a number of fees and expenses. One category of fees and expenses is charged to cover the cost of record keeping, paperwork, and periodic reports to annuity owners. This expense is the administrative charge. front-end load. investment management charge. surrender charge.
administrative charge.
Which of the following statements concerning individual medical expense insurance is (are) correct?I.Once a calendar year deductible is satisfied, no additional deductible is payable during the calendar year.II.Family deductibles are substantially higher than individual deductibles. I only II only both I and II neither I nor II
both I and II
Which of the following statements concerning managed care plans is true?I.Most employees are covered under some form of managed care plan.II.Managed care plans emphasize cost controls and preventative care. I only II only both I and II neither I nor II
both I and II
Which of the following statements is (are) true concerning benefit payments under long-term care insurance?I.Expense-incurred policies pay for actual charges up to a specified daily limit.II.Indemnity policies pay a specified daily benefit regardless of the charges incurred. I only II only both I and II neither I nor II
both I and II
Which of the following statements is (are) true concerning high deductible health plans?I.An employee can withdraw money tax-free from a health savings account or health reimbursement arrangement to pay covered medical costs.II.There is a cap on an employee's out-of-pocket expenses under the plan. I only II only both I and II neither I nor II
both I and II
Which of the following statements is (are) true with regard to a qualified longevity annuity contract (QLAC)?I.A lump sum premium is paid to provide income at some future date.II.A QLAC can be purchased to address the risk of exhausting retirement income from an employer-sponsored qualified retirement plan. I only II only both I and II neither I nor II
both I and II
Which of the following statements is (are) true with regard to using interest-adjusted cost data when shopping for life insurance?I.Cost indexes apply to new policies and should not be used to determine whether to replace a policy.II.Cost indexes should only be used to compare similar plans of insurance. I only II only both I and II neither I nor II
both I and II
Which of the following statements is (are) true with respect to variable annuities?I.The price at which accumulation units can be purchased fluctuates during the funding period.II.The value of annuity units fluctuates over time. I only II only both I and II neither I nor II
both I and II
Which of the following statements is (are) true with respect to vesting under a qualified defined benefit retirement plan?I.Vesting helps to reduce labor turnover.II.An employee who terminates employment after four years of service has no vested retirement benefit under cliff vesting. I only II only both I and II neither I nor II
both I and II
Nancy's employer provides an interesting employee benefit plan. Each employee is given 250 employee benefit credits to spend. A wide array of benefits is available, and the employee uses benefit credits to select the benefits that he or she wants. This type of employee benefit plan is called a(n) contributory plan. cafeteria plan. employee selection plan. defined benefit plan.
cafeteria plan.
A deductible under which expenses are accumulated on an annual basis, and once a specified total is reached, the deductible is satisfied for the year is called a prospective deductible. waiting period. straight deductible. calendar-year deductible.
calendar-year deductible.
HMOs typically pay network physicians or medical groups a fixed annual or monthly payment for each member, regardless of the frequency or type of service provided. This payment is called a pro-rata charge. corridor payment. persistency bonus. capitation fee.
capitation fee.
JKL Company just converted its traditional defined-benefit plan to another type of plan. Under the plan, benefits are defined in terms of a hypothetical account balance, with retirement benefits dependent upon the value of the participant's account at retirement. Each year, employees receive an interest rate credit and a pay credit which is a specified percentage of compensation. This type of plan is called a trust fund plan. cash-balance plan. deposit-administration plan. section 401(k) plan.
cash-balance plan.
The first step in "shopping for life insurance" is to determine if you need life insurance. decide whether you want a policy which pays dividends. decide on the best type of life insurance for you. estimate the amount of life insurance to purchase
determine if you need life insurance.
Under a unit-benefit formula, benefits are a function of both years of service and position within a firm. age and gender. earnings and years of service. age and earnings.
earnings and years of service.
The period of time during which an employee can sign up for group insurance coverage without furnishing evidence of insurability is called a(n) waiting period. noninsurability window. probationary period. eligibility period.
eligibility period.
The Affordable Care Act requires all new medical expense plans to provide a comprehensive set of coverages and services. This comprehensive set of coverages and services that must be provided are called long-term care benefits. dread disease benefits. essential health benefits. respite care benefits.
essential health benefits.
Which of the following is a characteristic of a longevity annuity? forfeiture of the purchase price if the annuitant dies during the deferral period high-cost annuity compared to other life annuities cash value can be borrowed or recouped through a nonforfeiture option payment of the face value of the policy at age 100
forfeiture of the purchase price if the annuitant dies during the deferral period
A financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits is called a funding agency. trust fund. funding instrument. mutual fund.
funding agency.
ABC Company offers a qualified retirement plan. ABC selected a funding instrument with an insurer in which the insurer promised to pay a specified interest rate for a number of years on a lump sum deposit. This funding instrument is called a separate investment account. trust-fund plan. group deferred annuity. guaranteed investment contract.
guaranteed investment contract.
Ellen purchased a health insurance policy. Under the provisions of the Affordable Care Act, which of the following renewal provisions must the insurer use in the policy? guaranteed issue conditionally renewable renewable at the insurer's option cancellable
guaranteed issue
Because of the Affordable Care Act, all new medical expense plans that offer individual and group coverage must accept all individuals and employers in the state who apply for coverage. These insurers are required to continue to renew the coverage at the option of the individual or plan sponsor. Thus, under the Affordable Care Act, the renewal provision is nonrenewable. renewable at the insurer's option. guaranteed issue. conditionally renewable.
guaranteed issue.
An employer-funded plan with favorable tax advantages, which repays employees for medical care not covered by the employer's standard medical plan is a(n) individual retirement account (IRA). flexible spending account (FSA). 401(k) account. health reimbursement arrangement (HRA).
health reimbursement arrangement (HRA).
In the context of employee benefits, the term "discrimination" refers to benefit comparisons between members of an under-represented group (by religious preference, race, or national origin) and the majority of employees. current employees and retirees. highly compensated employees and non-highly compensated employees. male and female employees.
highly compensated employees and non-highly compensated employees.
The Affordable Care Act has provisions that improve the quality of health care and lower costs. All of the following are examples of these provisions EXCEPT increasing the number of medical specialists and reducing the number of primary care physicians. compensating physicians based on value rather than on the volume of services. reducing paperwork and administrative expenses. cracking down on healthcare fraud.
increasing the number of medical specialists and reducing the number of primary care physicians.
The Affordable Care Act required that most U.S. citizens and legal residents have qualifying health insurance or pay a financial penalty. This provision of the Affordable Care Act was known as the individual mandate. premium subsidy option. Health Insurance Marketplace option. public option.
individual mandate.
Med Profs is a group of 18 doctors. These doctors work out of their own offices and treat patients on a fee-for-service basis. In addition, Med Profs doctors also agree to treat HMO members at reduced fees. The type of HMO that uses organizations like Med Profs is called a(n) network model plan. group model plan. individual practice association plan. closed panel plan.
individual practice association plan.
As Social Security slants benefits in favor of lower-paid workers, the Internal Revenue Code permits employers to adjust pension contributions so that the overall contributions (pension plus Social Security) are nondiscriminatory. This adjustment permits employers to increase pension contributions for highly-compensated employees. Adjusting contributions to consider Social Security contributions is called indexing. prorating. offset. integration.
integration.
Barb was injured in an auto accident. She was totally disabled and collected disability income benefits for 8 months. She would like to return to work on a part-time basis to see if her recovery is complete. During this period, her insurer will pay reduced disability income benefits. This type of disability is called permanent disability. recurrent disability. partial disability. presumptive disability.
partial disability.
Some managed care plans use physicians, hospitals, and health care organizations that agree to make medical services available to insureds at discounted fees. Insureds are not required to use these entities, but if they do, health care costs are less than if these entities are not used. Such health care entities are called health savings accounts (HSAs). health maintenance organizations (HMOs). Blue Cross/Blue Shield Plans. preferred provider organizations (PPOs).
preferred provider organizations (PPOs).
All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT premiums paid for individual life insurance are a tax deductible expense. policyowner dividends are received tax-free. life insurance proceeds paid to a beneficiary in a lump-sum are received tax-free. the annual increase in cash value is not taxable while the policy remains in force.
premiums paid for individual life insurance are a tax deductible expense.
Beth's disability income insurance policy provides benefits for accidental death, dismemberment, and loss of sight. The maximum amount payable under this benefit is known as the monthly benefit. principal sum. cash value. face value.
principal sum.
New employees at Jarvis Company cannot participate in the group term life insurance plan until they have worked at the company for three months. This initial period before a new employee can participate is called a(n) probationary period. open enrollment period. eligibility period. elimination period.
probationary period.
One long-term care insurance benefit trigger considers whether the insured needs supervision to protect against threats to health or safety due to memory loss or disorientation. This benefit trigger is referred to as a(n) severe cognitive impairment trigger. medical necessity trigger. activities of daily living trigger. needs test trigger
severe cognitive impairment trigger.
Advantages of cafeteria plans include all of the following EXCEPT employees can select benefits that best match their needs. greater employer control over increasing benefit costs. simplicity of benefit administration. reduced taxes for employees.
simplicity of benefit administration.
All the following are common exclusions in a medical expense insurance policy EXCEPT long-term care. dental care. surgeons' fees. routine eye care.
surgeons' fees.
Bridget started to fund a variable annuity. Three years later, she experienced financial difficulty. She called her agent and cancelled the contract. The insurer returned all but 4 percent of the account balance. The 4 percent kept by the insurer is a(n) front-end load. investment management fee. surrender charge. account administration fee.
surrender charge.
The Affordable Care Act includes a provision designed to help small employers make health insurance coverage available to their employees. This provision allows small employers to reduce their federal income tax by a percentage of the employer's contribution to health insurance for employees. This subsidy, in the form of reduction of income taxes, is called a marginal tax rate. tax credit. tax deduction. tax bracket.
tax credit.
Most group health insurance plans have adopted the coordination-of-benefits rules developed by the National Association of Insurance Commissioners. Under these rules, if a dependent child is covered by both of the health insurance plans of the child's married parents, which health plan is primary for the child's medical expenses? always the mother's plan the plan of the parent whose birthday occurs first in the calendar year the plan of the parent who works for the larger employer, based on number of total employees always the father's plan
the plan of the parent whose birthday occurs first in the calendar year
Mary is interested in comparing life insurance policies. Rather than looking at the cost per thousand, she would like to compare the rate of return earned on the savings portion of the policy. Which of the following would be of the most interest to Mary? the policy's traditional net cost the policy's Linton Yield the policy's surrender cost the policy's net payment cost
the policy's Linton Yield
The gross premium for life insurance is equal to the present value of the future death claim less the sum of the premiums paid when death occurs. the net premium less the expense loading. the present value of the future death claim less the present value of the expected dividends. the present value of the future death claim plus an expense loading.
the present value of the future death claim plus an expense loading.
Under the traditional net cost method, the net cost of life insurance for a given period (e.g., 20 years) is determined by which of the following formulas? the sum of the total dividends received during the period and the cash value at the beginning of the period less the total premiums paid for the period the total premiums for the period less the sum of the total dividends received during the period and the cash value at the end of the period the total premiums for the period less the policy reserve at the end of the period the sum of the total premiums and dividends for the period less the cash value at the end of the period
the total premiums for the period less the sum of the total dividends received during the period and the cash value at the end of the period
What is the purpose of stop-loss insurance that is used with self-insured group medical expense plans? to obtain administrative services from a commercial insurer to require employees to buy insurance for losses in excess of some specified amount to have a commercial insurer pay claims that exceed a specified limit to exempt self-insured plans from state insurance laws that require mandated benefits
to have a commercial insurer pay claims that exceed a specified limit
Beth purchased a $50,000 nonparticipating whole life insurance policy. The annual premium was $1,278. The cash value of the policy after 10 years will be $13,740. The future value of $1 deposited at the start of the year for 10 years, assuming 5 percent interest, is $13.207. If the premiums were invested at 5 percent interest for 10 years, the premiums would grow to $16,878.55. Assuming 5 percent interest, what is the net payment cost of this policy, per thousand per year, over the first 10 years the policy is in force? $17.24 $25.56 $12.71 $14.82
$25.56
Dirk required surgery for a kidney impairment. His total bill for medical services was $50,000. Dirk has a medical expense policy with a $1,000 calendar-year deductible and a $5,000 annual out-of-pocket limit. His coinsurance percentage is 20 percent. The out-of-pocket limit applies to coinsurance only. Assuming this surgery and hospitalization were the first medical care that Dirk received during the year and that all of the hospital services were eligible for coverage under the policy, how much of the $50,000 bill will the insurer pay? $39,200 $39,000 $40,000 $44,000
$44,000
David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent interest for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent interest for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent interest is $34.719. Based on this information, what is the surrender cost per thousand per year of David's policy over the 20-year period? $13.75 $27.38 $15.77 $5.62
$5.62
David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent interest for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent interest for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent interest is $34.719. Based on this information, what is the traditional net cost per thousand per year of David's policy over the 20-year period? -$1.52 $5.17 -$2.64 $9.75
-$2.64
Which of the following statements about retirement benefits under pension plans is true? Past service benefits are the result of bonuses and overtime pay during the period an employee participated in the plan. A unit-benefit formula considers both earnings and years of service. Under a flat percentage of annual earnings defined benefit formula, each employee receives the same dollar benefit. A benefit using final pay is usually based on an employee's earnings during the last month of plan participation.
A unit-benefit formula considers both earnings and years of service.
All of the following statements about optional disability income benefits are true EXCEPT A Social Security rider pays additional benefits if the insured is turned down for Social Security disability benefits. Adding a return of premium rider results in a lower initial premium. Under a cost-of-living rider, benefits are periodically adjusted for inflation. Under an option to purchase additional insurance, the insured has the right to buy additional insurance at specified times without evidence of insurability.
Adding a return of premium rider results in a lower initial premium.
Which of the following statements about Section 401(k) plans is true? If an employee takes the funds made available to him or her in cash, the money received is not taxable. There is no limit on the actual percentage of salary that can be deferred by highly compensated employees under a qualified plan. These plans are exempt from rules that prevent discrimination in favor of highly compensated employees. Elective salary deferrals to these plans are free of federal income taxation until the funds are actually withdrawn.
Elective salary deferrals to these plans are free of federal income taxation until the funds are actually withdrawn.
Charles, age 65, owns a paid-up $250,000 whole life policy on his own life. Charles is doing some estate planning and would not like this policy to be included in his gross estate for federal estate tax purposes. Which of the following statements is (are) true regarding the tax treatment of this policy?I.Charles can avoid having the policy proceeds included in his gross estate by naming his estate the beneficiary.II.If Charles makes an absolute assignment of the policy and dies more than three years later, the policy is not counted as part of his gross estate. I only II only both I and II neither I nor II
II only
Which of the following is (are) characteristics of HMO managed care plans?I.Unlimited choice of physicians and hospitalsII.Emphasis on controlling the cost of covered services I only II only both I and II neither I nor II
II only
Which of the following statements about Roth 401(k) plans is true?I.Contributions to a Roth 401(k) plan are made with before-tax dollars.II.Qualified distributions from a Roth 401(k) are received income-tax free. I only II only both I and II neither I nor II
II only
Which of the following statements about individual disability income policies that use a two-part definition of total disability is (are) true?I.During the initial period of disability, the insured must be unable to perform the duties of any gainful occupation.II.After the initial period of disability, the insured must be unable to perform the duties of any occupation for which he or she is reasonably fitted by education, training, and experience. I only II only both I and II neither I nor II
II only
Which of the following statements is true regarding disability income insurance? Increasing the elimination period reduces the premium for disability income insurance. Disability income insurance usually replaces 100 percent of lost income. The purchase of disability income insurance is not necessary if you are covered under workers compensation. A uniform definition of disability appears in all disability income policies.
Increasing the elimination period reduces the premium for disability income insurance.
All of the following statements about 403(b) plans are true EXCEPT The law limits the amount of income that an employee can elect to defer under a 403(b) plan. Contributions to a 403(b) reduce an employee's taxable income. Matching employer contributions are not permitted under a 403(b) plan. 403(b) plans are designed for employees of public school systems and tax-exempt organizations.
Matching employer contributions are not permitted under a 403(b) plan.
The Affordable Care Act has a provision that expands a public assistance program designed to make health coverage available to low-income individuals by increasing the maximum amount of income that can be earned and still qualify for benefits. As a result, millions of individuals are eligible for coverage under this program. This public assistance program is called Health Insurance Marketplace Exchange. Medicaid. health maintenance organization. Medicare.
Medicaid.
Which statement is true regarding IRA distributions? Minimum annual distribution rules apply to Roth IRAs. The IRA penalty tax applies to all traditional IRA distributions before age 59.5 with no exceptions. Minimum annual distribution rules apply to traditional IRAs. Distributions from a Roth IRA are taxed at the individual's marginal tax rate.
Minimum annual distribution rules apply to traditional IRAs.
All of the following statements about individual disability income policies are true EXCEPT In order to encourage rehabilitation, benefits may be continued during periods of vocational training. Premiums are often waived while a person is disabled but must be resumed if the insured recovers. Most disability income insurance policies contain an elimination period of 10 or fewer days. At the time of purchase, the insured can choose the length of the benefit period from among several available options.
Most disability income insurance policies contain an elimination period of 10 or fewer days.
Which statement is true regarding using interest-adjusted cost data and purchasing life insurance? Small variations in cost indices should be ignored. Interest adjusted cost data cannot be used to analyze whole life policies. The type of policy you purchase should he based solely on a cost index. Cost indices should be used to select an insurer, not an individual policy.
Small variations in cost indices should be ignored.
To encourage low- to moderate-income workers to save for retirement, a tax credit called the Saver's Credit is available. Which statement about tax credits and tax deductions is true? Tax credits reduce taxes owed on a dollar-for-dollar basis. Tax deductions reduce taxes owed on a dollar-for-dollar basis. Tax deductions are more favorable than tax credits for most taxpayers. Tax credits reduce taxable income.
Tax credits reduce taxes owed on a dollar-for-dollar basis
Which of the following statements describes how the net payment cost index differs from the surrender cost index? The cash value is ignored. Dividends are ignored. Dividends are not accumulated at a specified interest rate. Premiums are not accumulated at a specified interest rate.
The cash value is ignored.
Which of the following statements about SIMPLE retirement plans is true? They are limited to employers with 100 or fewer eligible employees and who do not maintain another qualified plan. Employers are subject to more stringent nondiscrimination rules than those that apply to most qualified plans. Employees are not permitted to make SIMPLE plan contributions. Employer contributions are fully taxable in the year of the contribution, but qualified distributions are received tax-free.
They are limited to employers with 100 or fewer eligible employees and who do not maintain another qualified plan.
All of the following statements about cost controls in dental insurance plans are true EXCEPT The coinsurance percentage used may vary by type of dental service. The limit on benefits may be expressed as an annual limit or as a lifetime limit for certain types of dental services. Cosmetic dental work is usually excluded. To eliminate small claims, there is no coverage for routine oral examinations, X-rays, or cleaning teeth.
To eliminate small claims, there is no coverage for routine oral examinations, X-rays, or cleaning teeth.
All of the following statements about traditional and Roth IRAs are true EXCEPT Contributions to Roth IRAs are made with after-tax dollars. Qualified distributions from Roth IRAs are received income tax free. Traditional IRA contributions may be fully, partially, or not income tax deductible. Traditional IRAs are exempt from the penalty tax on premature distributions.
Traditional IRAs are exempt from the penalty tax on premature distributions.
Which of the following statements about mandatory provisions in individual health insurance policies is true? The usual length of the grace period is 180 days. Insurers are not permitted to place time limits on filing claims or providing proof of loss. Under the reinstatement provision, a health insurance policy that has lapsed can be put back in force. The time limit on certain defenses provision prohibits the insurance company from denying a claim based on a fraudulent misstatement by the applicant after the policy has been in force three months.
Under the reinstatement provision, a health insurance policy that has lapsed can be put back in force.
Paul is shopping for a life insurance policy. An agent asked Paul if he would like to purchase a participating policy. What is a "participating" policy? a policy which has a cash value a policy which pays dividends a policy which provides for an increasing death benefit a policy which invests in common stock
a policy which pays dividends
Which of the following statements about the traditional net cost method of measuring the cost of life insurance is (are) true?I.The traditional net cost method does not consider the time value of money.II.The traditional net cost method can show that life insurance has a negative cost. I only II only both I and II neither I nor II
both I and II
Major defects in the health care system in the United States health care system includeI.Rising healthcare expendituresII.Considerable waste and inefficiency in the healthcare system I only II only both I and II neither I nor II
both I and II
Purposes of the coinsurance provision in medical expense insurance policies include which of the following?I.to reduce premiumsII.to prevent overutilization of policy benefits I only II only both I and II neither I nor II
both I and II
Reasons for having a minimum participation requirement before a group is eligible for insurance include which of the following?I.To lower the expense rate per unit of insuranceII.To minimize the possibility of insuring a group which consists largely of unhealthy individuals I only II only both I and II neither I nor II
both I and II
Under the Affordable Care Act, which of the following statements are true?I.Health insurers cannot use pre-existing conditions exclusions.II.Health insurers cannot impose annual benefit limits and lifetime benefit limits. I only II only both I and II neither I nor II
both I and II
Which of the following statements about preferred provider organization (PPO) health plans is (are) true?I.A PPO plan contracts with health care providers to provide medical services to members at reduced fees.II.Plan members are given a financial incentive to use PPO providers rather than other providers. I only II only both I and II neither I nor II
both I and II
Agnes and Mary Clare, two elderly sisters, own an annuity covering both of their lives. The annuity pays benefits to them until the first sister dies, then the annuity terminates. Agnes and Mary Clare own a(n) longevity annuity. joint life annuity. flexible premium annuity. joint-and-survivor annuity.
joint life annuity.
Brad funded a life annuity through installment payments. At age 60, he decided to elect an annuity settlement option and to begin to receive payments. Which of the following annuity payout options will provide Brad with the highest monthly income? life income with payments guaranteed for 5 years installment refund annuity life annuity (no refund) life income with payments guaranteed for 10 years
life annuity (no refund)
Some insurers offer a single-premium deferred annuity that does not begin paying benefits until an advanced age, such as 85. This product is called a(n) longevity annuity. life income with guaranteed payments annuity. equity-indexed annuity. endowment insurance.
longevity annuity.
Carl and Carol Williams, a married couple, are doing some estate planning. Upon his death, Carl plans to leave $1,000,000 in property to his wife. This amount will reduce the value of Carl's gross estate and will be taxed later when Carol dies. This reduction of the gross estate is called the taxable estate. capital gains deduction. unified tax credit. marital deduction
marital deduction
One type of deferred annuity allows the purchaser to invest a lump sum for a specified time period. The interest rate paid on the deposit is typically higher than the rate of return paid on certificates of deposit offered by banks. This type of deferred annuity is a(n) longevity annuity. qualified longevity annuity contract (QLAC). installment refund annuity. multi-year guaranteed annuity (MYGA).
multi-year guaranteed annuity (MYGA).
Individual medical expense insurance sold in the Health Insurance Marketplace is characterized by which of the following? narrow range of benefits no exclusions first-dollar coverage no lifetime benefit limits
no lifetime benefit limits
The difference between the present value of future benefits payable under a life insurance policy and the present value of net premiums for the policy is the policy's prospective reserve. retrospective reserve. admitted assets. policyholders surplus.
prospective reserve.
The fundamental purpose of a variable annuity is to guarantee a fixed-dollar benefit throughout retirement. provide a hedge against inflation. fund the purchase of cash value life insurance. provide funding flexibility to the purchaser.
provide a hedge against inflation.
One provision of the Affordable Care Act is designed to benefit young adults up to age 26. This provision allows these young adults to receive low-interest government loans to finance their health insurance. remain covered under their parents' health insurance policies. receive a tax credit for their health insurance premium if they are unemployed. receive coverage under Medicare if they are not covered by a private health insurance plan.
remain covered under their parents' health insurance policies.
Prior to passage of the Affordable Care Act, insurers could go back to the date a health insurance policy became effective and render the policy void due to a clerical error. This practice, which is prohibited under the Affordable Care Act except in cases of fraud or intentional misrepresentation of a material fact, is called estoppel. reformation. retention. rescission.
rescission.
The net premiums collected by a life insurer for a particular block of policies, plus interest income at an assumed rate, less assumed death benefits paid is called the retrospective reserve. net amount at risk. prospective reserve. cash value.
retrospective reserve.
A factor that can be ignored when determining the cost of life insurance is time value of money. settlement options. dividends. premiums paid.
settlement options.
Carl is concerned that if he purchases a fixed indexed annuity, he will lose money long-term if the stock index declines. Which equity indexed annuity provision assures Carl that he will not lose money if he holds the equity indexed annuity to term? the indexing method the maximum rate cap the participation rate the guaranteed minimum value
the guaranteed minimum value
All of the following are reasons why employers self-insure medical expense plans EXCEPT to retain funds until needed to pay claims. to reduce certain costs, such as premium taxes and commissions. to transfer the risk of medical expenses to another party. to eliminate the need to comply with separate state laws.
to transfer the risk of medical expenses to another party.
All of the following are methods used to fund the Affordable Care Act EXCEPT an excise tax on high-cost employer-sponsored plans. tort reform measures that reduce medical malpractice claims. reduced payments to Medicare Advantage plans. savings in the Medicare and Medicaid programs from reduced fraud and abuse.
tort reform measures that reduce medical malpractice claims.
Rita went to work for a manufacturing company. The company offers a defined-benefit pension plan. The retirement benefit is equal to 1.5 percent multiplied by years of service with the company, and the result is multiplied by average salary in the three highest consecutive years of paid employment with the company. The benefit formula used at Rita's company is a flat dollar amount for each year of service. unit-benefit formula. flat dollar amount for all employees. flat percentage of annual earnings.
unit-benefit formula.
All of the following are historical reasons for the increase in health care expenditures in the U.S. EXCEPT cost insulation because of third-party payers. employer-sponsored health insurance. technological advances in health care. universal health insurance coverage.
universal health insurance coverage.
Life annuity payments are made up of all of the following EXCEPT return of premiums. interest earnings. unliquidated principal of annuitants who die early. unliquidated principal of annuitants who live too long.
unliquidated principal of annuitants who live too long.
Daryl, age 42, quit his job. His employer offered a defined contribution pension plan, and the balance in the account was $30,000 when Daryl quit. He can avoid immediate taxation of these funds by using the funds to purchase common stock issued by the former employer. using an IRA rollover account. receiving the money through four equal installments. taking a lump-sum distribution.
using an IRA rollover account.